NYS Legislative Session

The New York State legislative session that ended in June 2005 was noteworthy in several respects. 

Nonprofit Lobbying Bill

A bill to require reporting of lobbying for government contracts passed both the Assembly and Senate and awaits action by Governor Pataki.  In essence, this bill puts lobbying for government contracts under the same registration and reporting regime applicable to lobbying on legislation.  The poster child for this legislation was the much publicized telephone call by a former senator for which he was allegedly paid $500,000 but which, under then current state law, was not reportable as a payment for lobbying. 

The bill would also raise the threshold for reporting lobbying expenditures from the current level of $2,000 per year to $5,000 per year.  It would aggregate all state and local legislative lobbying and procurement lobbying for purposes of applying this threshold.  We believe that this increase in the threshold would make it unnecessary for many nonprofits now registering and reporting to do so in the future. 

The bill does not provide an exemption from State reporting for local lobbying done in New York City.  New York City has its own lobbying registration and reporting law (with a $2,000 threshold) that covers contracting as well as lobbying with respect to municipal legislation.  A report to the Lobbying Commission by a specially-appointed group had recommended such an exemption with respect to New York City lobbying.

The details of how the new rules will work remain to be worked out.  If approved by the Governor, the new law would be effective on January 1, 2006.

Nonprofit Dissolution Bill

Another bill that passed both the Assembly and the Senate, through the leadership of Assemblyman Brodsky and Senator Leibell, would significantly simplify the procedure for dissolving a Not-for-Profit corporation created under New York law.  NPCC began work in the 1990s on legislation to achieve this simplification and so is delighted that it has now advanced to the point at which it awaits signature by Governor Pataki.  This legislation will, it is hoped, reduce the all-too-common practice of simply abandoning a New York Not-for-Profit corporation, rather than going through the costly and time-consuming dissolution process required under current law. 

Both the NYS Attorney General and the City Bar Association joined NPCC in supporting this legislation, as did many nonprofits whose letters of support were crucial in moving the legislation forward.

Nonprofit Accountability Bill

Three bills of interest involving regulation of nonprofits did not pass in this session.  One is a revised version of the so-called “Sarbanes-Oxley for Nonprofits” bill that we have reported on extensively in the past (now called the Nonprofit Accountability Bill).  The big change from the last version of the prior bill is that the financial controls “verification” in the prior bill is replaced by a provision requiring the nonprofit to maintain appropriate financial controls—a requirement presumably implicit under current law.  As this implicit requirement has not been well understood, the provision does a service, we believe, by spelling out in general terms what should occur.  Under the provision, no one is required to “verify” the financial controls, but “officers” are  required to disclose to the auditors (if any) and the audit committee (or the full board, if there is no audit committee) “based on such officer’s knowledge, significant deficiencies and material weaknesses” in the controls, any “fraud, whether or not material,” involving employees (including management) having a significant role in the internal financial controls and, any “material information that indicates that the financial information” in the N-PCL section 520 annual report for the nonprofit that does not “fairly present in all material respects the financial condition and results of operation of the corporation...” 

So, this duty is imposed on officers (all or most of whom are ordinarily directors) and it is limited to their “knowledge”— (the Bill is silent as to the level of inquiry, if any, expected of officers).  Obviously, explicitly imposing this duty is a good idea in terms of underscoring the need for board oversight of financial matters.  Presumably, the duty is inherent in being a board member today.  Our concern is whether the provision will scare people off from becoming officers, particularly in the current atmosphere.  A related concern is that officers may be so concerned about meeting their obligations that they place excessive demands on staff, thereby cutting into program activity.  Thus, this new provision has pros and cons.  It’s a great improvement over its predecessor but it may be counter-productive as to improving governance if it discourages board service. 

As was the case with the prior bill, this bill would also, in general, call for the creation of an audit committee for nonprofits that have their financials audited by a CPA or have revenues of at least $2 million per year (whereas the prior bill had a test of revenues of over $1 million or assets of over $3 million) and for the creation of an executive committee for boards having over 25 members.  In addition, it would give the Attorney General increased powers to challenge interested party transactions that received board approval.  NPCC’s Government Relations Committee has supported these three provisions as to audit committees, executive committees and interested party transactions as being important to improve governance and operations of nonprofits so as to increase public confidence in them.  NPCC believes that these three provisions would be constructive and not inappropriately burdensome.  As our readers know, NPCC has been very vocal in opposing rules it believes would add burdens on nonprofits that would outweigh the benefits.

Finally, this bill seeks to rationalize the very complex rules relating to indemnification of officers and directors (regarding posting security for expenses that are advanced); we will seek to explore the implications of this proposed change with the Charities Bureau as we are concerned that, as drafted, the bill may not achieve the intended effect.

The two other bills of interest that did not pass were one that would impose, as a separate bill, the same Attorney General oversight rules for interested party transactions that would be imposed under the new Nonprofit Accountability Bill for nonprofits described above and another, the so-called “clean-up” bill, that would revise miscellaneous provisions of existing nonprofit law in various respects, including with respect to solicitation of contributions. 

As noted, we have supported the provisions of the interested party transactions bill; we will be working with the Attorney General’s Charities Bureau on a few provisions of the “clean up” bill about which members of our Government Relations Committee have raised questions.

As always, we will keep you posted on developments.  If anyone has questions, email Jon Small at jsmall@npccny.org.

This article originally appeared in the August 2005 issue of NPCC's newsletter, New York Nonprofits.  www.npccny.org